Expansion of ties economic space contributes to the emergence of risks that are inherent in this business in a foreign country.Investors interested in the optimal placement of funds in an unknown market may face an unstable political regime, corruption, defaults and other adverse events.All these factors relate to country risk.
definition
Country Risk - is a threat of financial loss in operations which, in one way or another, linked to international activities.It is determined by the terms of the country's development and the degree of their impact on customers, suppliers.For example, the imposition of restrictions on transactions in foreign currency can cause a delay in meeting the obligations.This threat is particularly true for countries where historically maintained the convertibility of the national currency.
hierarchy
Country risk consists of two components: the ability and willingness to pay.With the first commercial losses linked, and the second - the political regime in the country.Financial costs can be both at the state level (risk of insolvency) and at the company level.Under the second, it is understood that during the state's economic policy could limit transfer of capital.Political country risks include the probability of losses due to the impact of adverse external factors in the region investing.
Assays
To reduce financial losses, using different methods of assessment of the situation in the country.The analysis was performed immediately before investing.If the risk is high, then a project delayed or added to the cost of "premium".But previously used methods for assessing country risk had one big drawback: they brightened the information.Now the most popular method is the Delphi.Its essence lies in the fact that analysts initially developing a system of indicators, and then draw the experts who determine the weight of each factor to a particular country.The downside of this approach is a subjective assessment.
Modern methods
country risk analyzes in the West scoring method.It is a quantitative comparison of the main characteristics of the different countries and elimination of the resulting integral index, which takes into consideration all the criteria and ranks states on their investment attractiveness.In this technique the index built by German BERI.It is used to assess the investment climate in 45 countries on the basis of 15 criteria with different specific weight.Each indicator is assigned a rating from 0 to 4. The higher the score, the higher the profit potential of the investor.
Fortune magazine Economist and analyze country risk Central and Eastern Europe under the simplified procedure, in which the emphasis is on the prospects for market reforms.The importance of the results determined by the fact that the effective capital investment depends on the intensity of the reforms in the countries.
Portfolio investors are also using special credit ratings, which are selected based on an optimal object for investments.On the basis of the method developed by the magazine Europe, twice a year, evaluates the reliability of the world.
Factors
Creating a favorable investment climate is an essential condition for economic growth.Active inflow of capital (for example, Russia) prevent such factors as:
- lack of a stable legal framework.
- rising social tensions because of the constant deterioration of the material conditions of the population.
- separatist sentiment, which take place in some regions of Russia.
- corruption in certain spheres.
- Poor infrastructure - especially transportation, communications, telecommunications, hotel service.
types
Country and regional risks include threats such as:
1. Refusal to recognize the debt or its future maintenance.
2. renegotiation: the lender will receive less money, because the borrower has achieved a rate cut.If the contract was initially offset by debt refinancing penalties, the consequences for the investor are the same as in the case of non-payment.
3. In the case of rescheduling the debt are two possible scenarios:
- amount of payments of principal is reduced, part of the debt written off;
- if the borrower is seeking a delay in payments, the rate will not change.
4. The suspension of payments for technical reasons of a temporary nature.The creditor should have no doubt that the borrower will fulfill its obligations.The interest rate in this case is the same.
5. Currency restrictions, when the country lacks foreign currency, impose limits on transfers of funds abroad.At the state level, this threat is transformed into a risk of failure of debt service.
rank
Country risk premium is determined by the yield of government bonds of one country and other debt to the same period of validity.As for Russia, the strong decline observed in 1998.Then, the risk increased faster than the premium for it.That is, investors are not only lacking reliable information, but the markets were focused on the global ratings agencies, who missed the changes in economic and political factors.The first crisis occurred a few days before the default in 1998 and immediately afterwards.
country risk level strongly affects the banks, whose activities are directly related to foreign economic relations.In such a threat affected by several factors.All they need to take into account when analyzing the situation in a particular region.
Country Risk Russian
agency Moody's Investor Service lowered the rating of the Russian Federation to the speculative.If the Standard & amp;Poor's and Fitch to assess preparedness to repay the debts, the MIS allows for the fullness of payments in case of defaulting.Experts believe that the terrestrial negative evaluation due to political reasons.According to forecasts of the agency, the outflow of capital in the current year will amount to 272 billion dollars, GDP will decrease by 8.5%, while inflation will accelerate to 15%.But the Ministry of Finance argued that Russia had survived a great shock - a 50 percent decline in oil prices.And because country risk agencies greatly overstated.Accumulating international reserves, which are higher than the national debt.Also there is a current account surplus.These benefits agency did not consider.But points were set based on the fact that Russia can get new sanctions because of the unpredictable development of events in Ukraine.
Consequences
evaluation of country risk, on the one hand, adequate.The market of foreign capital in Russia actually closed.The downgrade affects the cost of borrowing for the country.This is almost painless.But experts worry that such a global rating agency will force investment funds to reset their investments in Russia.And even after the stabilization of the situation is unlikely to quickly return the capital to the country.The second threat is that lenders will request early redemption of Eurobonds.The downgrade was accounted for by the market in the form of short-term and low jump in the dollar to a mark of 64 rubles.
The banking sector also suffered
downgrade led to the deterioration of the investment attractiveness of Moscow, St. Petersburg and 13 regions.Sovereign evaluation of the capital and the Leningrad region was at the level of "Ba1".This is higher than in Bashkortostan, Tatarstan, Samara, Nizhny Novgorod, Belgorod and other regions.The forecast for these regions remains negative.In addition, country risk is reflected in the Russian credit institutions.Long-term deposit ratings of Sberbank and VTB in rubles lowered to "Baa3" and "Ba1", and in foreign currency - to "Ba1" and "Ba2" with a negative outlook changes.The same situation is observed in the "Alfa-Bank", "Gazprombank" and "Rosselkhozbank".
Conclusion
Country risk is formed on the basis of a large number of internal and external factors that affect the investment attractiveness of the state.Such threats are more typical for regions where there are restrictions on the convertibility of the currency.In these countries there is always the currency, transfer and risk of total failure of the debt.Therefore, before investing resources necessary to conduct a thorough analysis of the external and internal factors.International rating agencies annually publish their assessment of investment attractiveness of countries.
